The ad industry is still hilariously corrupt, report says

Ad agencies are using smoke-and-mirror tricks to drive up production costs on their clients’ dime, according to a new report from an advertiser trade group.

The Association of National Advertisers, which reps big brands like Procter & Gamble, General Motors, and Walmart, found that advertising giants have been known to route lucrative contracts for production and post-production work on commercials to their own in-house shops. This is done through deceptive—and illegal—means like enlisting other agencies to rig the bidding process or disguising their ownership of the firms, the report claims.

The accusation adds to a growing sense among advertisers (i.e. the parties that foot the bill for all this clandestine maneuvering) that Madison Avenue is using shady business practices to run up their tabs.

It’s also caught the attention of federal regulators. The Wall Street Journal reported in December that the Justice Department has opened a probe into these production schemes, which violate competition laws meant to keep markets on a level playing field.

Heading up the investigation is antitrust lawyer Rebecca Meiklejohn, who famously sent a handful of ad execs to jail for similar charges in 2004.

Suffice to say, these are some weighty allegations. But they’re also not all that novel. Such dealings have long been something of an open secret in the industry, according to the report’s author, ANA vice president Bill Duggan.

“We’ve been hearing rumblings of this activity for several years now,” Duggan said. “It was a long road to get here, and by the time we got here, there was just a lot of evidence.”

The study comes on the heels of another bombshell transparency report from the ANA last summer that outlined nebulous rebate schemes through which agencies collude with firms that buy ad placements and media companies in ways that aren’t necessarily in the best interest of clients.

Duggan says the group first began collecting evidence on the production rigging while interviewing various industry professionals for that previous research. In addition to those primary sources, the most recent 30-page report is based on the testimonies of a dozen experts on various parts of industry sausage-making, all but one of whom agreed that yeah, transparency seems to be a pretty big problem (the last expert said he had only secondhand knowledge).

Over the past few decades, the global ad industry has been largely folded into six giant holding companies, a process that was expedited by the looming threat of Silicon Valley disruption.

Those behemoths now control firms operating at every level of the advertising assembly line, from creative shops to media buyers to production companies and, in some cases, even media outlets.

In the traditional way of doing things, these companies are supposed to compete for each other’s business in order to ensure the best deal for clients. But it’s not hard to see how conglomerate entanglements might make for a conflict of interest.

That situation along with chaos caused by the industry’s bumpy transition to a digital-first world have led to a situation where advertisers and agencies trust one another less than ever. Record numbers of marketers have put their agencies under review in the past couple years—a process in which an advertiser decides whether or not it wants to fire them. Agency-of-record deals, in which one firm handles all of a client’s business are becoming increasingly rare.

Agency trade group 4A’s came out in fierce opposition to the rebates report, but their reaction to the latest finding seemed a bit more muted. In a statement to Adweek, it simply said it “condemns any activity or business practice that is unethical or, of course, illegal.”